Showing papers in "Financial Analysts Journal in 1994"
TL;DR: In this paper, the authors examine the changing cross-country correlations in the G-7 countries and provide clues as to why they change and propose a method for forecasting multi-period equity correlations.
Abstract: An important component of asset allocation decisions is the future correlation structure of equity returns. Other studies have found that correlations change through time. Examination of the changing cross-country correlations in the G-7 countries provides clues as to why they change. Equity cross-correlations are related to the coherence between business cycles in the respective countries. Correlations are higher during recessions than during growth periods. Correlations are low when two countries' business cycles are out of phase. A semicorrelation metric differentiates equity comovements in bull and bear markets and provides a method for forecasting multiperiod equity correlations. Two applications are investigated: out-of-sample global portfolio allocation and derivative instruments.
577 citations
TL;DR: The authors used default rates to model the term structure of credit risk and found that default rates can be used to predict the probability of a credit default in a bank's balance sheet, but not its creditworthiness.
Abstract: (1994). Using Default Rates to Model the Term Structure of Credit Risk. Financial Analysts Journal: Vol. 50, No. 5, pp. 25-32.
317 citations
TL;DR: In this article, the authors discuss factors influencing individual investor behavior, and present a survey of the factors that influence individual investor behaviour, focusing on the following three categories: 1) Individual Investor Behavior:
Abstract: (1994). Factors Influencing Individual Investor Behavior. Financial Analysts Journal: Vol. 50, No. 4, pp. 63-68.
269 citations
TL;DR: In this article, the Electronic Trading, Market Structure and Liquidity (ETLS) is discussed, and the authors present a model for electronic trading, market structure and liquidity.
Abstract: (1994). Electronic Trading, Market Structure and Liquidity. Financial Analysts Journal: Vol. 50, No. 1, pp. 39-50.
237 citations
TL;DR: In this paper, a model of swap default risk evaluates jointly the probability of the swap counterparty defaulting and the cost (or impact) of the default for the solvent party, which helps to establish the correct level for a swap between risky (or potentially risky) parties.
Abstract: With the growth in the market for interest rate swaps has come a growing need to understand the potential default risks of these instruments. In general, swap participants can deal with default risk by seeking to mitigate it (by dealing only with AAA-rated counterparties, for example). Alternatively, potential counterparties can attempt to come to some agreement about the degree of default risk and use that knowledge to "price" their positions. A model of swap default risk evaluates jointly the probability of the swap counterparty defaulting and the cost (or impact) of the default for the solvent party. The model helps to establish the correct level for a swap between risky (or potentially risky) parties. The key considerations are the swap parties' credit conditions and the shape and volatility of the yield curve.
229 citations
TL;DR: In this article, the authors propose a method for valuing employee stock options, which is similar to the one we use in this paper. But they do so with a different context.
Abstract: (1994). Valuing Employee Stock Options. Financial Analysts Journal: Vol. 50, No. 6, pp. 46-56.
180 citations
TL;DR: In this paper, the present value of future Dividends is calculated using P/E, P/B and the Present Value of Future Dividend (P/B).
Abstract: (1994). P/E, P/B and the Present Value of Future Dividends. Financial Analysts Journal: Vol. 50, No. 4, pp. 23-31.
162 citations
TL;DR: In this article, short selling and common stock prices are discussed. But short selling is not considered in this paper, as discussed in Section 5.1.1] and Section 6.2.
Abstract: (1994). Short Selling and Common Stock Prices. Financial Analysts Journal: Vol. 50, No. 1, pp. 20-28.
121 citations
TL;DR: This paper showed that overlay management can add value to global equity and bond portfolios, however, it cannot enhance performance by as much as an integrated approach to currency management, which is inherently suboptimal because it ignores interactions between the assets in the underlying portfolio and exchange rates.
Abstract: Global investors are now paying more attention to the management of the currency risks of their portfolios. Some have started to delegate currency management to "overlay" managers. These managers use currency futures and forwards to minimize the risks or maximize the returns of the underlying asset portfolios. The overlay structure is inherently suboptimal because it ignores interactions between the assets in the underlying portfolio and exchange rates. Based on historical data, the efficiency loss appears to be on the order of 40 basis points for equity portfolios. This loss, of course, must be balanced against any excess returns that may be generated by specialized overlay managers. Simulated results over the 1978-91 period indicate that overlay management can add value to global equity and bond portfolios. It cannot enhance performance by as much as an integrated approach to currency management, however.
96 citations
TL;DR: In this paper, the authors present evidence that trading volume Sustains Stock Price Changes, showing that trading volumes are correlated with stock price changes, and present a method to quantify the effect of trading volume on stock price change.
Abstract: (1994). Evidence that Trading Volume Sustains Stock Price Changes. Financial Analysts Journal: Vol. 50, No. 6, pp. 57-67.
87 citations
TL;DR: In this paper, falling in love again is described as "Analysts’ Estimates and Reality" and falls into the category of "Fallen love again" (FRE).
Abstract: (1994). Falling in Love Again—Analysts’ Estimates and Reality. Financial Analysts Journal: Vol. 50, No. 5, pp. 66-68.
TL;DR: In this paper, the authors present a portfolio composition and the investment horizon for portfolio composition, which is based on the idea of Portfolio Composition and the Investment Horizon (PCH).
Abstract: (1994). Portfolio Composition and the Investment Horizon. Financial Analysts Journal: Vol. 50, No. 1, pp. 51-56.
TL;DR: In this article, the authors compare value versus growth stocks: Book-to-Market, Growth, and Beta. But they do not discuss the relationship between the two types of stocks.
Abstract: (1994). Value versus Growth Stocks: Book-to-Market, Growth, and Beta. Financial Analysts Journal: Vol. 50, No. 5, pp. 18-24.
TL;DR: In this paper, a realistic Dividend Valuation Model (RVM) is proposed for the stock market, which is based on a real-valued stock market index.
Abstract: (1994). A Realistic Dividend Valuation Model. Financial Analysts Journal: Vol. 50, No. 4, pp. 50-54.
TL;DR: This article found that changes in analysts' EPS forecasts and the number of analysts changing their forecasts are also related to abnormal returns in several international markets, including the U.S. stock market.
Abstract: Numerous studies of U.S. markets have shown that stock selection models have been able to isolate securities that earn returns above those predicted by a simple market model. Models examining the relation between analyst expectations and returns have been particularly useful. Unexpected earnings, changes in analysts' earnings-per-share forecasts, the number of analysts revising their forecasts-all these measures have been found to be useful in predicting abnormal returns in U.S. equity markets. At least two of these measures-changes in analysts' EPS forecasts and the number of analysts changing their forecasts-are also related to abnormal returns in several international markets.
TL;DR: Although an investor may be less likely to lose money over a long horizon than over a short horizon, the magnitude of a potential loss increases with the length of the investment horizon.
Abstract: Although an investor may be less likely to lose money over a long horizon than over a short horizon, the magnitude of a potential loss increases with the length of the investment horizon.
TL;DR: In this article, the authors present what practitioners need to know about event studies and what they need to be aware of in order to be successful in event studies. And they discuss the following:
Abstract: (1994). What Practitioners Need to Know…About Event Studies. Financial Analysts Journal: Vol. 50, No. 6, pp. 17-20.
TL;DR: In this paper, CFA Charterholders Better Equity Fund Managers: Financial Analysts Journal: Vol. 50, No. 6, pp. 68-74, are discussed.
Abstract: (1994). Are CFA Charterholders Better Equity Fund Managers? Financial Analysts Journal: Vol. 50, No. 6, pp. 68-74.
TL;DR: The year-end effect in junk bond prices has been studied in this article, with a focus on the year end effect on the price of junk bonds, and their effect on stock prices.
Abstract: (1994). The Year-End Effect in Junk Bond Prices. Financial Analysts Journal: Vol. 50, No. 5, pp. 61-65.
TL;DR: In this article, the authors present Multicurrency Performance Attribution Attribution: Multimodal Multi-currency Performance Attribution (MPMPA) for Multi-Currency Multi-Attribute Attribution.
Abstract: (1994). Multicurrency Performance Attribution. Financial Analysts Journal: Vol. 50, No. 2, pp. 29-35.
TL;DR: The Free Cash Flow/Small-Cap Anomaly as discussed by the authors is an anomaly in small-cap as discussed by the authors, which occurs when the free cash flow/small-cap anomaly is large.
Abstract: (1994). The Free Cash Flow/Small-Cap Anomaly. Financial Analysts Journal: Vol. 50, No. 5, pp. 33-42.
TL;DR: The Economics of Pension Fund Management as mentioned in this paper is a seminal work in the field of fund management, focusing on the role of fund managers in the management of pension fund management and its effect on fund performance.
Abstract: (1994). The Economics of Pension Fund Management. Financial Analysts Journal: Vol. 50, No. 6, pp. 21-31.
TL;DR: In this article, the authors used earnings estimates for global asset allocation and showed that they can be used to estimate the value of assets in the stock market and to allocate them accordingly.
Abstract: (1994). Using Earnings Estimates for Global Asset Allocation. Financial Analysts Journal: Vol. 50, No. 2, pp. 60-72.
TL;DR: In this article, the authors present a dynamic diversification of fixed income portfolios based on a fixed-income index, which is used to measure the performance of a fixed income portfolio.
Abstract: (1994). Dynamic Diversification of Fixed Income Portfolios. Financial Analysts Journal: Vol. 50, No. 1, pp. 30-38.
TL;DR: In this article, a valuation approach to currency hedging is presented. But the valuation approach is not suitable for all currencies, and it is not appropriate for all currency hedgers.
Abstract: (1994). A Valuation Approach to Currency Hedging. Financial Analysts Journal: Vol. 50, No. 2, pp. 55-59.
TL;DR: In this paper, the authors use the ratings in the Fortune survey of company quality as direct measures of perceptions of company qualities and a proxy for the Fortune quality ratings is constructed from the BARRA, Inc., list of company characteristics.
Abstract: The growth-value and small-large scales are popular, but they suffer from two deficiencies: They are not grounded in theory, and they lack clear definition. Shefrin and Statman offered a remedy in a theory in which the quality scale-the scale that separates good companies from bad-plays a central role. Here, the ratings in the Fortune survey of company quality are used as direct measures of perceptions of company quality and a proxy for the Fortune quality ratings is constructed from the BARRA, Inc., list of company characteristics. This quality scale has applications in style selection and style rotation. Categorizing companies along the growthvalue and small-large scales is now a common practice. Both scales are imperfect measures of quality, the scale that separates companies perceived as "good" from those perceived as "bad." Good companies have such characteristics as good management and good products and services. The growth-value and small-large scales have gained widespread use because empirical evidence, such as that presented by Fama and French, shows significant differentials in stock returns along these scales.1 The growth-value and small-large scales have two deficiencies, however, one related to lack of theoretical foundation and one related to ambiguity in measurement and application. Black noted that no theory underlies the return differentials along the growth-value and small-large scales.2 Discussing the Fama and French findings, Black wrote "lack of theory is a tipoff: watch out for data mining" (p. 9). As to the measurement issue, no general agreement exists about the characteristics that distinguish growth from value. Some analysts use book-price ratios, others use earnings-price ratios, and still others use dividend yield. Moreover, the terms "growth" and "value" often are robbed entirely of meaning. Bogle reported that, as of the end of 1992, Philip Morris Companies was the largest holding of both growth and value mutual funds.3 As to size, Chan and Chen point out that the distinction that matters is not the distinction between small and large companies but the distinction between financially distressed and financially healthy companies.4 Moreover, although size is most often measured as market value of equity, measures such as book value of assets are also used. Shefrin and Statman offered a remedy for the theoretical deficiency of the growth-value and small-large scales within a behavioral capital asset pricing model.5 Asset prices in the behavioral capital asset pricing theory are the outcome of an interaction between two kinds of traders-information traders and noise traders. Information traders know the relationship between characteristics of companies and the return distributions of the stock of these companies. In contrast, noise traders make systematic errors as they assess the relationship between characteristics of companies and the return distributions of the stocks of these companies. The error that is relevant here is representativeness, a cognitive heuristic described by Tversky and Kahneman.6 The error manifests itself in the belief that good stocks are stocks of good companies. Statman and Shefrin provide direct evidence that, on average, investors indeed believe that good stocks are stocks of good compa7 nies.
TL;DR: In this article, a decision tree is used to determine the course of treatment for a patient admitted to a trauma center, with an appropriate set of "if-then" rules.
Abstract: Linear models dominate quantitative thinking in investments. The weighted sum of a relevant set of factors, typically determined from a regression or discriminant analysis, determines model expectation. This approach is quite different from the heuristic style of decision making people tend to prefer. For example, when a patient is admitted to a trauma center, the attending physician determines the course of treatment for the emergency by going through a set of hierarchical decisions. Some things are more important than others, and they get considered first. Is there a pulse? is clearly a question to be asked first. Then follow questions of decreasing significance in deciding the course of treatment for the patient. The decision model for the physician is a decision tree, with an appropriate set of "if-then" rules. The decision tree is determined in a heuristic fashion based on experience and is preferred to a quantitative, weighted-sum approach, as in regression or discriminant analysis. The best investment decision making is more along the lines of using the right decision tree than using the right linear model.
TL;DR: In this paper, the authors predict long-horizon stock returns: evidence and implications, and present a method to predict the long-term performance of stock market. Vol. 50, No. 1, 1994
Abstract: (1994). Predicting Long-Horizon Stock Returns: Evidence and Implications. Financial Analysts Journal: Vol. 50, No. 1, pp. 73-76.